Investment Returns Calculator
Understanding Your Investment Returns
Projecting the growth of your assets is a fundamental step in financial planning. This Investment Returns Calculator uses the power of compound growth to show how your initial capital and consistent monthly additions evolve over your specified time horizon.
The Power of Compound Growth
Compounding occurs when the earnings from your investment are reinvested to generate their own earnings. Over long periods, this creates an exponential growth curve. The "Expected Annual Yield" represents the average percentage your portfolio grows each year, accounting for dividends, capital appreciation, or interest distributions.
Key Variables in Calculation
- Initial Capital: The amount you have ready to invest at day zero.
- Monthly Addition: Regular contributions that lower your sequence-of-returns risk and accelerate the compounding process.
- Annual Yield: Your assumed rate of return. While historical stock market averages often hover around 7-10% (inflation-adjusted), conservative estimates often use 4-5%.
- Time Horizon: The single most impactful factor. Time allows the compounding effect to dominate the total value of the portfolio.
Practical Example
If you start with 10,000 units of currency and contribute 500 units every month for 20 years at an 8% annual yield, your total contributions would be 130,000. However, due to the compounding effect, your estimated future value would be approximately 334,000, meaning your capital gains (profit) exceeded your total contributions by a significant margin.
Important Considerations
This calculator assumes that returns are compounded monthly and that contributions are made at the end of each month. It does not account for taxes, inflation, or brokerage fees, which can impact the net purchasing power of your future wealth. Always consider a diversified approach to manage risk relative to your yield expectations.